Car ownership in Singapore is super expensive. On top of the car’s market value, other additional fees and charges form the bulk of the cost.
So while you may have been diligently saving for your purchase, additional fees and charges may necessitate you to get financing to help make your ownership journey easier.
But because lenders are out to make a profit and offer different terms, you’re going to have to know what it costs to acquire a loan from each before you approach them.
That’s where a Singapore car loan calculator comes in. It lets you know what financing a car would take with each lender, among other details.
So in this article, we will explain how to calculate car loan interest Singapore to determine how much you can borrow and also point you to where to get the loan.
How Much Can You Borrow For A Car Loan?
The maximum amount you can borrow for a car loan is based on the car’s Open Market Value (OMV).
- For cars valued up to $20,000, the maximum amount you can borrow is 70% of its valuation or purchase price, whichever is lesser
- For cars valued at $20,000 and above, the maximum amount you can borrow is 60% of the purchase or the valuation price, whichever is lesser
Note that these amounts are the maximum possible, but the actual amount that a bank will give you may be much smaller because it will factor in your credit score, your income, and your other financial commitments.
An important regulation in Singapore concerning loans is the Total Debt Servicing Ratio (TDSR). The TDSR specifies that no person in Singapore should use more than 55% of their income to pay loans.
So if you are already channeling a significant portion of your salary towards other commitments like paying your mortgage loan or credit card bills, you are less likely to qualify for the maximum loan.
Another important stipulation is that you must have enough cash to pay 30% or more as a downpayment.
What COE, OMV And PARF Mean
As you navigate banks’ and other money lenders’ websites or visit them in person, you will likely come across abbreviations like COE, OMV, PARF, and others.
Here’s what they mean:
|COE (Certificate of Entitlement)||It's a legal document that allows you to drive a car in Singapore for 10 years. It carries the bulk of the cost of your car. The COE varies depending on the car's category, which also depends on its fuel consumption.|
|OMV (Open Market Value)||The car's actual price excluding costs like taxes, duties, COE, and others. It's the price a car would cost in a country where car ownership is not taxed.|
|PARF (Preferential Additional Registration Fee)||The PARF rebate is for cars that are less than 10 years old. It’s pegged to the OMV remaining at the point of deterioration.|
|ARF (Additional Registration Fee)||ARF is a tax that you pay after registering a car. It is pegged on the OMV and is at least 100% of the OMV.|
|Goods and Services Tax (GST)||GST is paid on the OMV plus excise duty. It's currently at 8% but will rise to 9% in 2024.|
|Excise Duty||It's the tax for cars, tobacco, and alcohol. The excise duty for cars is 20% of the OMV.|
Knowing these abbreviations and their meanings will let you know what to expect or the questions to ask when you apply for a car loan.
How Long Should Your Car Loan Tenure Be?
Typically, a loan tenure lasts up to seven years. Unfortunately, with loans, the longer the tenure, the more expensive it is because you pay more interest over the life of the loan.
So it’s best to pick the shortest tenure possible, one whose monthly payments you can handle comfortably.
The loan tenure changes when you’re buying a used car. For example, if you buy an eight-year-old car, the maximum loan tenure possible is two years.
This is because Singapore has set up the COE to last only 10 years of the car’s life, and after that, the car is deemed worthless. Therefore, if you’re buying an eight-year-old car with only two years left, the maximum loan tenure will be two years.
If you’re buying a car over 10 years, called a COE car, it won’t be easy to find a lender to loan you money. Although some lenders would still offer you a loan, you will experience some challenges. Also, remember that you will need to renew the COE because the first one has run out.
So before you buy a used car, find a used car calculator and see if it’s worth investing your money in it.
How To Use A Car Loan Calculator
To know how to calculate car loan interest Singapore, you use a car loan calculator to assess the amount of money you would need to pay and to determine the best loan offer available based on your comparison of different car loan offers from lenders across Singapore.
Using a car calculator in Singapore, rather than calculating the cost manually, simplifies the process and helps you avoid errors. You only need to key in a few items into the calculator.
It’s the market value of the car you intend to buy. We liken it to the principal amount you ask for when seeking a loan, without added costs like the interest and the processing fee.
But remember first to subtract the money you raised as a downpayment on a car before you enter this figure. The more you pay as a downpayment, the lower your monthly payments will be.
The loan tenure, also called the loan term, is the period you expect to pay the car loan. If you choose a long period, your monthly installments will be low, but the interest you pay at the end of the tenure will be very high.
But a shorter term will get you to pay high monthly installments with lower interest rates. Still, the faster you can clear the loan, the better it is because you will have paid less than if you let the loan last longer.
Nevertheless, even if you want to avoid the expensive route, it’s best to take up a loan payment schedule that does not interrupt your life too much.
The interest rate is the price you pay to get the loan. It varies from one customer to the next because of the differences in creditworthiness.
Those with a low credit rating get high interest rates, while those with a high credit score get favourable interest rates. Therefore, it would help if you worked on improving your credit score before you applied for a car loan.
After keying in the details above, the loan calculator makes the calculations in the background and submits the following data instantly:
Total Monthly Payment
It’s the entire amount that you must pay every month as the principal amount and as part of the interest charged for your car loan.
Total Interest Paid
It’s the total amount you pay as the cost of the loan throughout its life. But if your car loan calculator has an amortised schedule, you should see the amount of interest to pay each month.
Note that the interest due at the beginning of your repayment period is high, but gradually reduces as you pay off the principal amount little by little.
This reducing rate applies to customers who pay as scheduled. But if you default, the amount due will increase because of payment penalties and charges.
Total Principal Paid
It’s the initial amount you obtained as the loan. It does not include the downpayment, and it’s calculated based on the value of your car at the time of purchase.
How To Lower Your Car Loan Payment
The sure way to end up with an affordable loan is to take one with a low interest rate. But there are other ways to do it, such as:
- Get a low-priced car
- Reduce the loan tenure
- Lower the amount you are borrowing
Remember that with loans, doing your homework before settling on a lender is crucial. Consult with different money lenders and banks.
With each, conduct loan payment calculations to compare each offer to determine the better financial decision.
Consider if you can manage the monthly payments and whether you can take on a shorter-term loan.
Do all you can to find ways to make getting credit cheaper and more manageable for you.
Other Factors To Consider
Besides the loan tenure and the monthly installments, other factors to consider that apply to your loan are:
- Processing fees
- Administrative fees
- Late interest charges
- Late payment charges
- Early payment charges
Settle for a loan arrangement with the best terms in all of the above areas in readiness for different situations that may arise in future.
Where To Get A Car Loan
Licensed Money Lenders
U Credit is a licensed money lender approved to operate in Singapore by the Ministry of Law. We are one of the best money lenders in Singapore because we have a short approval time, and you receive the cash faster.
We also have the most favourable interest rates in Singapore, making our loans some of the most affordable and manageable.
We do not have an income limit and only ask that you have a source of steady income, regardless of the amount you earn. You will also love that we offer a flexible repayment schedule customised to your income and lifestyle so that you do not strain or forfeit any important bills during the repayment period. Typically, our loan tenures range from one to five years.
You may also choose to partner with commercial banks. Many car dealers offer financing options in partnerships with banks.
But they do not do it because banks offer cheaper or better financing; the dealers get a commission. But still, you may find some relatively good rates with the banks.
A selection of banks that have some fair lending terms are:
- United Overseas Bank
- DBS/ POSB Bank
- OCBC Bank
- Hong Leong Finance
- Standard Chartered Bank
These loans cost 2.78% per annum with a tenure lasting up to seven years*.
*Information correct at time of publishing
Get A Car Loan Now In Singapore
Now that you know how to calculate car loan interest Singapore, why not apply for a car loan now from U Credit?
We have favorable deals that will make your car ownership journey as smooth as possible, during the acquisition and repayment.